Reverse Liquidity Bootstrap Pools (RLBPs) are Balancer Weighted Pools whose weight ratio drifts over time. Starting with a high token weight and low USDT weight, then shifting toward 50/50, lets a project post a small USDT reserve and still run a functioning market.
Across realistic sell-pressure scenarios, an RLBP ends with a higher token price and more remaining USDT than a standard constant-product AMM seeded with the same capital.
The first year of existence is usually the most turbulent one for any token. Large quantities of tokens get unlocked. The demand side is usually not there yet. Anxious investors succumb to FUD and dump the token early. This is what usually also leads to the dreaded "reverse hockey stick" shape of the token price.
Projects typically aim to offset this via a combination of three tools:
- Liquidity posted on decentralized exchanges.
- Token buybacks.
- Market makers.
In this article I will explore an alternative approach to simple DEX liquidity and early token buybacks, namely Reverse Liquidity Bootstrap Pools (RLBPs). In the scenarios below, the mechanism ends up with a higher token price and more remaining liquidity than a standard constant-product AMM seeded with the same capital. That result holds in a 100% sell-pressure extreme, and in a realistic middle case where buyers show up alongside sellers.
What are Reverse Liquidity Bootstrap Pools?
To explain what an RLBP is, I need to start from the basics, a simple Constant Product AMM pool. A Constant Product Automated Market Making Pool (CP AMM), like the ones on Uniswap v2 or SushiSwap, is simply a pool consisting of two assets. The two assets' amounts are always of equal value, and the price of each asset is determined by the ratio between the two. For example, for a pool consisting of wETH and USDT:
- If the pool has 10 wETH and 30,000 USDT, those two balances are of equal value.
- 1 wETH is worth 30,000 / 10 = 3,000 USDT in the pool.
- 1 USDT is worth 10 / 30,000 = 0.0003(3) wETH.
- If the price of wETH is different on other exchanges, users can arbitrage the price by buying or selling wETH to the pool. By doing so they change the amounts of wETH and USDT in the pool until it is again at equilibrium.
A Balancer Weighted Pool is a variation of a CP AMM where the tokens have not only amounts but also weights. The weights let the pool creator configure things so the pool reaches a similar price as a CP AMM with less liquidity (among other use cases). Using the same example: if ETH has a weight of 91 and USDT has a weight of 9, the pool displays a price of roughly 30,300 USDT per ETH.
What this means in practice is that we could deposit about 10 times less USDT and still display an ETH price of roughly 3,000 USDT per ETH with just 3,000 USDT of liquidity. The caveat? Buying and selling ETH would move the price a lot faster in this pool than in a pool with 30,000 USDT worth of liquidity. Capital efficiency, at the cost of depth.
A Liquidity Bootstrap Pool is a Balancer Weighted Pool where the weights of the tokens change over time. But why would you need that? Simply put, those pools are intended as a pricing mechanism for token sales. If in our example the pool started at 10 wETH and 3,000 USDT with a 91/9 weight distribution, and the weights gradually shifted towards 50/50, the price of wETH would gradually fall from 3,000 USDT to 300 USDT (assuming no buying or selling in the pool). This effectively makes the pool function like a Dutch auction for the token, with the end result being that the pool "converts" into a normal CP AMM when it reaches the 50/50 weight ratio. If people buy the token along the way down, they add liquidity to the pool and push the price back up.
Obviously this does not make much sense in the context of wETH, but you can imagine it working as a price discovery and token sale mechanism for a random ERC20 token. Now I have to admit that the term "Reverse" is a bit misleading: Liquidity Bootstrap Pools do not have a pre-defined direction or weight parameters. However, the most common use case is to start with a lot of project tokens at high weight and modest liquidity (USDT in our example) at low weight, then gradually arrive at equal, or even inverted, weights.
So when I talk about Reverse Liquidity Bootstrap Pools, I mean a pool that starts with:
- A low amount of project tokens with high weight.
- An average amount of liquidity with low weight.
If you want to discuss an advanced token liquidity setup for your project, talk to our tokenomics team
RLBPs in practice
Let's explore a made-up project (simplistic on purpose):
- The project has raised 4 MM USD via its token sale, giving away 25% of all tokens (1 BN in total).
- The raise happened over two sale rounds: 10% at 0.01 per token, and 15% at 0.02 per token.
- Up to 20% of the raise money (800,000 USD) is set aside for liquidity and price stabilization during the first two years of the project's operation.
- At launch, the token price target on the DEX or CEX should be slightly higher than the last sale price (so investors don't feel cheated), but not so high that sell pressure is incited. Target: 0.021 USDT per token.
- Luckily, you have listened to the good advice of your tokenomics experts and kept a very conservative token vesting schedule. 3% of all tokens are released upfront, additional tokens vest at 1% per month, bringing the circulating supply to 27% of total at the end of year 2.
Let's compare how the token might behave with a CP AMM versus an RLBP. I initiate the pools as follows:
- CP AMM: 800K USDT and 38 MM tokens, which gives a price of 0.021 USDT per token.
- RLBP: 800K USDT and 2 MM tokens, at 95/5 weights, which again gives an initial price of 0.021 USDT per token. The weights then gradually shift towards 50/50 over 24 months.
Scenario 1: no sell pressure (extreme A)
Although unrealistic, first a baseline where there is no selling pressure at all, but also no buy-side pressure on the token.
The CP AMM behaves as expected: with no buying or selling pressure, the price stays at 0.021 USDT per token. The RLBP's price, however, climbs steadily as the ratios gradually reach a 50/50 equilibrium. Why is that? Recall that I initiated the pool with 800,000 USDT of liquidity and 2 MM tokens. When the pool reaches 50/50 weights, it pretty much starts acting as a standard CP AMM pool, and in such a pool the price is simply 0.8 MM / 2 MM = 0.40 USDT per token.
Scenario 2: 100% sell pressure (extreme B)
On the other end of the spectrum, 100% of the tokens are sold the minute they vest, and there is no buy-side pressure at all. This gives us the following chart.
A bad outcome either way, but let's see exactly how the two pools performed. Both pools absorbed 270 MM tokens of selling pressure. The results:
- CP AMM pool: price 0.00036 (-98.2%), remaining USDT liquidity roughly 105K.
- RLBP pool: price 0.0015 (-92.8%), remaining USDT liquidity roughly 378K.
The RLBP price is roughly five times higher and the pool has nearly 50% of its original USDT liquidity intact. Same sell pressure, very different landing zone.
Scenario 3: a middle path
Now a scenario that is not on one extreme or the other. Assume 25% of all vested tokens are sold on the market, and at the same time there is demand for the token (speculators or actual app-driven demand) of around 2 MM tokens per month.
Although every month has net selling pressure (500K tokens or more), the RLBP ended up with the higher price. Final numbers:
- CP AMM pool: price 0.01 (-38.4%), remaining USDT liquidity roughly 558K.
- RLBP pool: price 0.029 (+51.3%), remaining USDT liquidity roughly 539K.
Same net sell pressure in both pools, and the RLBP still delivered a positive price trajectory while keeping a comparable amount of USDT in the pool.
Pros, cons, and considerations
On paper, Reverse Liquidity Bootstrap Pools look like a no-brainer. The pros:
- Built-in price appreciation, which is good for optics.
- The pools tend to end with higher price, higher remaining liquidity, or both, compared to a standard CP AMM.
- They require fewer tokens upfront.
- The scheduled price increase gives early investors a reason to hold, since their tokens are worth more the longer they wait.
However, there are several things to consider that are less clean:
- In almost all cases, the RLBP price drops faster during early sell pressure, which can trigger unnecessary FUD very early on.
- If there is more buy-side pressure early on, the price rises sharply, which means more volatility. This can be mitigated by the team selling tokens into the pool in case early buy-side pressure outruns sell-side pressure.
What about regular market makers? Isn't their job to do exactly this? Yes it is, and a dedicated team of competent market makers can likely achieve better results than either a CP AMM or an RLBP. However:
- Market makers are an added expense.
- There is no reason why an RLBP cannot work in tandem with a regular market maker.
- Projects that want to be fully decentralized might prefer the RLBP solution rather than employing a centralized entity to manage their token liquidity.
Isn't an RLBP the same thing as starting with a lower-liquidity pool and using the excess capital to buy back tokens off the market? Not really. In the middle-path scenario, the RLBP absorbed 17 MM tokens of selling pressure and ended with a 51% higher token price. 17 MM tokens at 0.021 is 357K USDT. If I had instead used 357K USDT to buy back tokens off the market and 442K for liquidity, I would have ended with 442K in remaining liquidity and 0% price increase. With the RLBP, I ended with 539K remaining liquidity and a 51% price increase. One of the main advantages: all the liquidity is in the pool from the start, which is useful to minimize sell pressure impact when it arrives (not after), and it does not require manual intervention.
Closing thoughts
In this article I've just scratched the surface of what is possible with Liquidity Bootstrap Pools. There is more to explore:
- Different starting and ending weights of the pools.
- Allowing the pools to start at a lower price compared to the token sale.
- Impact of mixed strategies (pools plus buybacks).
Hopefully still, this article serves as a useful starting point for implementing more advanced sell-pressure management tools for projects, compared to the standard simple Constant Product AMM pools.
Frequently asked questions
01What happens if the token sees heavy buy-side demand early in an RLBP's life?
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02Can you retrofit an RLBP onto a token that is already trading on DEXs?
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03What starting weight ratio is reasonable for an RLBP?
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04How long should the RLBP weight transition take?
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